Smart Trade

Download

KARVY KNOWLEDGE
MOBILE APP

Membership

What are the benefits in futures trading in commodities?

Futures trading in commodities results in transparent and fair price discovery on account of large scale participations of entities associated with different value chains and reflects views and expectations of wider section of people related to that commodities. This also provides effective platform for price risk management for all segments of players ranging from the producers, the traders, processors, exporters/importers and the end users of the commodity. The trading on futures contract on our platform will be facilitated on an online platform for market participants to trade in a wide range of commodity derivatives driven by the best global practices of professionalism and transparencies. We have provided with more details on the entire gamut of commodity trading in India in general and on NCDEX in particular in our website under "Presentations". Please visit our website www.ncdex.com.

Who can become member of NCDEX?

An individual, partnership firm, Private limited company, public limited Company, co-operative societies are eligible to become members of NCDEX.

Can we apply for the membership under the HUF account?

No, HUF is currently not permitted for NCDEX membership.

Is NCDEX a separate legal corporate entity?

National Commodity and Derivatives Exchange Ltd (NCDEX) is a public limited company registered under The Companies Act, 1956 with the Registrar of Companies, Maharashtra in Mumbai on April 23,2003. The registration no of NCDEX is U51909 MH 2003 PLC 140116

Net worth of the new entity should be Rs 50 lacs. Please follow the procedure explained in detail in Annexure C-1A of the application form to calculate the networth.

Whether the networth of the holding company will be taken into consideration for the same?

No, the networth of the holding company is not taken into consideration for reckoning the networth of the entity applying for membership.

How could a new company submit the 3 years balance sheet?

In case of newly formed companies, only current balance sheet needs to be submitted.

Who will certify the various certificates, which are required to be certified by the auditor of the company?

The certificate and statements need to be certified by a Qualified Chartered Accountant who has audited the same.

Is it a must that the individual should be a graduate?

It is desirable, however, we will consider waiving the same in case of persons having adequate experience in commodity market, financial markets.

What is the lock in period for the interest free security deposit?

The lock in period for the interest free security deposit fee is three years.

When is the security deposit eligible for refund in case of surrender?

The interest free security deposit will be refunded to the TCM, when they express their intention to relinquish their membership rights after a cooling period of 6-12 months of surrendering the membership rights. The minimum lock in period for membership is three years.

What is the essential requirement for collateral?

Collateral security could be in the form of bank guarantee, RBI Bonds, fixed deposits and Government of India Securities. These certificates have to be deposited with the NCDEX and the same will be refunded on relinquishment of the membership.

Are the course materials available for the proposed exam to be undertaken by the core dealer?

The course module and the study materials is being complied and the same will be made available on our website. The core dealer is expected to pass the exam on or before the date stipulated by NCDEX.

Whether we can apply for the membership of NCDEX in the same name in which we are holding the membership of NSEIL?

The existing stock broking company cannot apply in the same and need to form separate entity for seeking membership of NCDEX.

Whether exposure will be allowed against base capital and collateral?

Exposure will be permitted against base capital and collateral however a portion of the same will utilized for formation of Settlement Guarantee Fund

What are the trading hours?

The trade timings of the exchange are 10.00 a.m. to 4.00 p.m. It is also proposed to have after hours trading also.

Is there any additional cost towards acquiring membership in addition to what has been specified in the application form?

There are no additional costs other than what is stated in the application form.

Are the memberships to be taken afresh for each of the products to be traded in NCDEX from time to time?

No, the membership availed at the first instance is composite one and will be valid for all the products which are to be traded on NCDEX.

Can one use the NSE terminal to trade in NCDEX?

Separate VSat connectivity is required.

Whether one can use the idle NSE terminal for trading on NCDEX?

One can use the dish and other hardware with concurrence of NSE and service provider.

What is the meaning of dominant promoter group?

The dominant promoter group stipulation is applicable in case of partnership firms, private limited companies and unlisted public companies. As per this stipulation, a group of not more than 4 individuals (who directly / indirectly hold more than 51% of capital in the firm / company) need to be identified as the key promoters of the entity. This exercise is an effort by NCDEX to identify and understand the individuals, who are the driving forces of the entities applying for membership on NCDEX

What are the commodities identified for trading?

Subject to Forwards Market Commission approval, 9 commodities, viz, Gold, Silver, Cotton, Soyabean, Soyaoil, Rape/Mustardseed, Rape/Mustard oil, Crude Palm Oil and RBD Palmolein are the commodities that will be traded in the first phase. NCDEX proposes to trade in all the major commodities approved by FMC.

Which are the other multi commodity exchanges in the country?

Forward Markets Commission has accorded in principle approval for the following national level multi commodity exchanges in the country apart from NCDEX

National Board of Trade

Multi Commodity Exchange of India

National Commodity & Derivatives Exchange of India Ltd

How NCDEX is different from other exchanges?

NCDEX is a professionally managed, nation wide, on-line multi-commodity exchange promoted by ICICI Bank Ltd, National Bank for Agriculture and Rural Development (NABARD), Life Insurance Corporation of India (LIC), and National Stock Exchange (NSE).

NCDEX is a technology driven de-mutualised commodity exchange with an independent board of directors and professionals not having any vested interest in commodity markets. It is committed to provide a world class commodity exchange platform for market participants to trade in a wide spectrum of commodity derivatives driven by the best global practices of professionalism and transparency.

The four institutional promoters of NCDEX are prominent players in their respective fields and bring with them institutional building experience, trust, nation wide reach, technology and risk management skills.

Will the exchange plan to have market makers?

We are in dialogue with large scale players in commodity market for voluntary market making like in case of gold and silver major bullion importing banks have agreed fro market making. Similarly large commodity trading houses have agreed to do market making in commodities they are dealing in.

What is your membership scrutiny process?

The membership forms will be processed at our end and in case of any additional information, the same will be called for. If found in order, the applicants will be subsequently called for personal interaction with the membership committee of NCDEX. Successful applicants will be intimated by NCDEX.

What should be the main objective clause in the Memorandum of Association to aid in trading in commodity futures?

The main objective clause to be inserted in the Memorandum of Association is :

To carry on the business of trading in agricultural products, metals including precious metals, precious stones, diamonds, petroleum and energy products and all other commodities and securities, in spot markets and in futures and all kinds of derivatives of all the above commodities and securities.

To carry on business as brokers, sub brokers, market makers, arbitrageurs, investors and/or hedgers in agricultural products, metals including precious metals, precious stones, diamonds, petroleum and energy products and all other commodities and securities, in spot markets and in futures and all kinds of derivatives of all the above commodities and securities permitted under the laws of India.

To become members and participate in trading, settlement and other activities of commodity exchange/s (including national multi - commodity exchange/s) facilitating, for itself or for clients, trades and clearing/settlement of trades in spots, in futures and in derivatives of all the above commodities permitted under the laws of India.

Whether a designated director in an entity having membership of BSE assume similar responsibility /designation in the new subsidiary formed for taking membership of NCDEX.

While taking membership of BSE the designated directors have executed undertaking to following effect "We hereby undertake that on starting business in the Stock Exchange, Bombay, we shall cease to do any other business or render professional services in any other capacity or work as an employee".

In view of undertaking as above it is suggested that designated director on entitiy having membership of BSE does not assume responsibility as qualifying director in corporate entity seeking membership of NCDEX. However entity having membership of BSE can seek membership of NCDEX through subsidiary route.

Whether qualifying director in entity being member of NSE assume similar responsibility /designation in the new subsidiary formed for commodity exchange?

Yes, in case of NSE there is no such bar.

At what point of time one has to comply with the Net worth requirements?

Upon the provisional admission as NCDEX member and being advised on the same by NCDEX, the prospective members are required to comply with the networth requirements in 2-3 weeks time.

Settlement

Is NCDEX going to have its Clearing Corporation?

NCDEX has tied-up with NSCCL for clearing the trades

Who maintains and the Settlement Guarantee Fund?

Settlement guarantee fund would be maintained and managed by NCDEX.

How would contracts settle?

All open contracts not intended for delivery and non-deliverable positions at client level would be cash settled.

What would be the settlement period?

All contracts settling in cash would be settled on the following day after the contract expiry date. All contracts materializing into deliveries would settle in a period of 2-7 days after the expiry. The exact settlement day would be specified for each commodity.

Would you be providing for deliveries?

Yes

Are deliveries compulsory?

No. The buyer and the seller have to express their intention for delivery. Deliveries would be matched randomly at client level. Contracts not assigned delivery would be settled in cash

Would additional margins be levied for deliverable positions?

Yes

How would the settlement take place in commodity futures market?

For open positions on the expiry day of the contract, the buyer and the seller can give intentions for delivery. Deliveries would take place in electronic form. All other positions would be settled in cash.

How would a buyer take physical delivery?

Any buyer intending to take physicals would have to put a request to its Depository Participant, who would pass on the same to the registrar and the warehouse. On a specified day, the buyer would go to the warehouse and pick up the physicals.

How would a seller get the electronic balance for the physical holdings?

The seller intending to make delivery would have to take the commodities to the designated warehouse. These commodities would have to be assayed by the Exchange specified assayer. The commodities would have to meet the contract specifications with allowed variances. If the commodities meet the specifications, the warehouse would accept them. Warehouses would then ensure updating the receipt in the depository system giving a credit in the depositor's electronic account.

How would the seller give an invoice to the buyer?

The seller would give the invoice to its clearing member, who would courier, the same to the buyer's clearing member.

How many warehouses would be there?

To start with, we are looking at only one delivery center for each commodity and only one warehouse in that location. Over a period of time, we would be adding warehouses to the list.

How would you accredit warehouses?

NCDEX would prescribe the accreditation norms, comprising of financial and technical parameters, which would have to be met by the warehouses. NCDEX would take assayer's/Structural Engineer's certificate confirming the compliance of the technical norms by the warehouses.

Whether the accredited warehouses would be dedicated warehouses?

In case of grains/seeds, warehouses would earmark a definite storage capacity within the warehouse premises for members of NCDEX, while in case of oils, specified tankers would be earmarked for NCDEX participants.

Who would decide the warehousing charges?

The warehouse concerned would decide the warehousing charges. However the warehouse charges would be made available on our website

Would health checks and inventory verification be carried out?

Yes. The assayers and or other experts on behalf of NCDEX would carry out surprise health checks and inventory verification.

What happens to the sales tax?

Prices quoted for the futures contracts would be basis warehouse and exclusive of sales tax applicable at the delivery center. For contracts materializing into deliveries, sales tax would be added to the settlement amount. The sales tax would be settled on the specified day after the payout.

How would the buyer give a declaration for re-sale in case of last point collection of tax?

The buyer intending to take delivery would give declaration for re-sale at the time of giving intention for delivery. Accordingly the seller would issue the invoice, exclusive of sales tax. The declaration form duly signed by the buyer would be forwarded through the buyer's clearing member to the seller's clearing member within a specified time after pay-in and payout.

How will you ensure uniformity in delivered grades / varieties?

The exchange will specify, in its contract description, the particular grade / variety of a commodity that is being offered for trade. A range will be specified for all the properties and only those grades / varieties, which fall within the range, will be accepted for delivery.

In case the properties fall within the range, but differ from the benchmark specifications, the Exchange will specify a premium / rebate

Would there be any premium / rebates for the difference in quality

Yes. These would be pre-defined and made available on the website. The settlement obligation would be impacted on account of the premium / rebates in case of deliverable positions. The parameters which would be considered for premium / rebate computation as well as the methodology would be specified by NCDEX

Who will be certifying / assaying agencies. Will they also give the time validity for the commodities certified?

We are looking at following assayers: SGS India Pvt. Limited, Geo-Chem Laboratories, Dr. Amin Superintendents & Surveyors Pvt Ltd., Calib Brett and Stewart. Only certificates given by specified assayers by NCDEX will be accepted. All the certificates issued will have time validity

What happens when the commodities reach the validity date?

Those commodities will not be available for delivery on the clearing corporation. Hence the deliverable electronic balance would be automatically reduced. Warehouse would place the commodities in a separate area, indicating that they are not available for electronic trading.

Would commodities be accepted without assayer's certificate?

No

Can commodities be re-deposited in the warehouse after the validity period of the assayer's certificate?

Yes, provided they are re-validated by the assayer.

What would be transaction charges?

Rs.6/- per Rs100, 000/- i.e. 0.006% of the trade value.

What is the procedure for handling bad delivery / part delivery?

Partial delivery as well as bad delivery would be considered as default. Penalties would be levied.

How would disputes be resolved?

Any disputes in regard to the quality / quantity will be referred to the Arbitration committee set up for the purpose.

Who would be the clearing bankers?

Following banks have agreed to act as clearing bankers:

Canara Bank

HDFC Bank

ICICI Bank

UTI Bank

Who would be the depository participants?

We have approached

Bank of Baroda

Canara Bank

Global Trust Bank

HDFC Bank

ICICI Bank

IDBI Bank

Indusind Bank

UTI Bank

Technology

Would the same technology infrastructure of NSE be used?

No

Why is the same network of NSE not being considered?

There is no additional capacity available. As the operations are time critical, we thought it prudent to have a separate network

Are VSATs compulsory?

No. NCDEX is proposing an option of either two lease lines or one lease line backed by V-SAT

Which protocol is being used?

We would be operating on TCP / IP protocol

Who would provide the services?

NCDEX has tied up with HCL Comnet for VSAT services. The services would be provided as a package deal at the price agreed. The cost approximately works out to be Rs.140, 000/- in year 1. The total cost over a period of 5 years works out to be approx. Rs200, 000/-. The member would directly deal with the vendor. However, NCDEX would monitor the service levels of the vendor. Member is free to approach NCDEX for problems faced and NCDEX would intervene.

When would the payment be made?

The member would have to directly make the payment to the vendor. As soon as NCDEX confirms the membership, NCDEX would intimate the service provider. The member would approach the service provider, along with the one time payment.

Is there a facility of buy back of VSAT in case of surrender of membership?

Yes, the service provider would buy back the VSAT at a price, which would be dependent on the year of surrender and the condition in which it is surrendered. The rates for buy back would be specified.

Sales Tax

Does the trading / clearing member need to have sales tax registration?

No. The member need not have a sales tax registration. However, if the member wants to undertake proprietary trading and take the delivery of the commodities, then he needs to have sales tax registration under the provisions of the relevant State sales tax law.

Do the clients/participants need to have sales tax registration?

Those clients who trade with the intention of taking/giving delivery should have sales tax registration before settlement of the delivery based trades. Deliveries given by clients/participants who are not registered under the relevant State sales tax law or whose registration is not valid on the date of sale / delivery, will amount to defaults.

In which state sale tax registration is to be obtained?

Sales tax registration is to be obtained in the State where the delivery center for the commodity is located.

What is rate of sales tax applicable?

Rate of sales tax for the commodities differs from State to State. In the case of settlements culminating into delivery, sales tax at the rates applicable in the State where the delivery center is located will be payable. Many States’ sales tax laws, also provide for levy of additional tax, turnover tax, resale tax, etc. which may or may not be recoverable from the buyer depending on the provisions of the local State sales tax law.

The rates of tax on the various commodities dealt on the Exchange are given below for reference.

Commodity

Delivery Center State

First point Tax rate

Surcharge

Turnover Tax

Re-sale: Tax Rate

Last Point: Tax Rate

Gold

Maharashtra

1%

0

0

0

0

Silver

Delhi

0

0

0

0

1%

Soy bean

Madhya Pradesh

4%

0

0

0

0

Soya Oil

Madhya Pradesh

4%

15%

0

8% VAT on Margin + 15% SC

0

Mustard Seed

Rajasthan

4%

0

0

0

0

Mustard Oil

Rajasthan

4%

0

0.25%

0.25%

0

Crude Palm Oil

Gujarat

4%

0

0

0

0

Cotton

Gujarat

0

0

0

0

4% on Sale by Licensed Dealer to unlicensed dealer

Disclaimer: The rates given above are only for reference, are as per the information available and should be verified from independent sources. The Exchange will not be responsible for accuracy of the same.

Who is responsible for payment of sales tax?

It is obligatory on the part of the seller to collect the sales tax from the buyer and deposit the same into the Government Treasury. However, in the case of commodities which are liable to tax on purchases only and not on sales, the buyer will have to discharge the liability for payment of tax. In all other cases, payment of taxes will be the sole responsibility of the seller.

When is the sales tax payable by the buyers?

On the day of settlement the sales tax incidence on the trades settled would be notified to the clearing members, which will be settled on the supplemental settlement day, which is normally two (2) days after the actual settlement day.

Can sales tax exemptions be availed? How?

Yes. The participants can avail of the exemptions, if any entitled to them. The buyers will have to indicate their ability to give supporting documents / certificates / declarations prescribed under the respective State sales tax laws at the time of giving requests for taking delivery and will have to be submitted before the supplemental settlement day. Submission of incomplete or invalid declarations / certificates would amount to defaults on the part of the seller.

What are the procedure for submission of the support documents /certificates / declarations for availing the sales tax exemptions?

At the time of supplemental settlement the buyers will have to confirm their eligibility for availing exemption from payment of sales tax. The party will have to physically deliver the support documents to their respective clearing members within 5 business days and the clearing members will forward the same to the relevant parties within the next two days thereafter.

If a client/participant trades in more than one commodity having delivery centers in different States does he need sales tax registration in each of such states?

Yes, the client/participant will have to register in all those states where the delivery center for the commodities is located.

How should the client/participant move the commodities into the designated warehouses?

The client / participant are responsible to move the commodities from their warehouse into the warehouses designated by the Exchange. Such movement may be by way of stock transfers from place outside the State for which the client / participant will be responsible for issuance of certificate in Form F under the Central Sales Tax Act, 1956 to his dispatching branch. The client / participant will also be responsible for payment of octroi, entry tax, cess, etc. on entry of the goods into the local areas in the State where the designated warehouse is located and for obtaining check post declaration forms from the sales tax department.

If the client / participant move the commodities from another State pursuant to a fructified sale transaction, there could be liability for payment of Central sales tax in the State from where the inter-State movement of the commodities commences. The client/participant will be responsible for the payment of the Central sales tax in such cases. The clients/participants are being advised to move the commodities into the designated warehouses well in advance and ensure compliance of provisions of law.